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      Question

      Consider KRK’s demand function for cigarettes forĀ  as

      Q= .02m- 2p where m is his income and p is the price. KRK’s income is Rs.7500 and the price of a cigarette is Rs.30. Suppose government decides to increase the price of cigarettes to Rs.40, the change in total demand, income effect and substitution effect for KRK isĀ  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā  Ā 
      A Change in Total Demand =-20, Income Effect =-15 and Substitution Effect = -5 Correct Answer Incorrect Answer
      B Change in Total Demand = -25, Income Effect =-18 and Substitution Effect = -7 Correct Answer Incorrect Answer
      C Change in Total Demand = -30, Income Effect =-15 and Substitution Effect = -15 Correct Answer Incorrect Answer
      D Change in Total Demand = - 20, Income Effect = -18 and Substitution Effect = -2 Correct Answer Incorrect Answer

      Solution

      Ā 

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